Analyst Conference Summary

conference date: July 28, 2015 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2015 (second quarter, Q2 2015)

Forward-looking statements

Overview: Another stunning quarter. Record revenue & EPS. Upped revenue guidance.

Basic data (GAAP) :

Revenue was $8.24 billion, up 9% sequentially from $7.59 billion and up 26% from $6.54 billion in the year-earlier quarter.

Net income was $4.49 billion, up 4% sequentially from $4.33 billion and up 22% from $3.66 billion year-earlier.

Earnings per share (EPS, diluted) were $2.92, up 6% sequentially from $2.76 and up 33% from $2.20 in the year-earlier quarter.

Guidance:

Product revenue for 2015 guidance increased to $29 to $30 billion. Gross margin range increased to 88% to 90%. R&D expense lowered to $2.8 to $3.0 billion. SG&A expense lowered to $3.0 to $3.2 billion. Effective tax rate lowered to 18% due to a favorable tax ruling.

Conference Highlights:

Harvoni and Sovaldi had total $4.9 billion in revenue, $3.4 billion in the U.S. 60,000 started treatment in the quarter. Access is improving, but many more prescriptions were written than were filled, due to payer denials. Has over 90% of HCV patients in U.S. 30,000 new patient starts in Europe. Uptake in Spain was particularly good. Harvoni pricing negotiations completed in France in June. Sovaldi reimbursement to broaden in the U. K., plus Harvoni reimbursement. In U.S. expects payers to start allowing patients with lower fibrosis scores to get treatment; the backlog is large.

TAF ingredient for HIV therapies shows improved safety over TDF, which is important given the long term of expected treatment for new patient. There are 3 TAF products under review.

Of new HIV patients in U.S., about 80% receive Gilead therapies.

Numerous programs are in place to generate the next round of revenue growth (see below). Gilead has the cash to take opportunities as they arrive.

Non-GAAP numbers: Net income was $4.85 billion, up 5% sequentially from $4.60 billion and up 23% from $3.93 billion year-earlier. Non-GAAP EPS was $3.15, up 7% sequentially from $2.94 and up 33% from $2.36 year-earlier. % product gross margin.

Product sales were $8.1 billion, up 9% sequentially from $7.4 billion and up 27% from $6.4 billion in the year-earlier quarter. $5.6 billion were in the U.S. and $2.0 billion were in Europe, up 50% y/y.

Royalty, contract and other revenue was $118 million.

Cash and equivalents ended at $14.7 billion, up sequentially from $14.5 billion. Long term liabilities were $13.6 billion. $5.7 billion cash flow from operations. $0.9 billion was used for repurchase shares. $3.9 billion was used to retire 2016 convertible debt. $633 million was paid in dividends.

GS-5816 (velpatasvir) combined with Sofosbuvir is being studied for difficult to treat HCV genotypes, with data supporting adding GS-9857.

Zydelig had positive Phase 3 results in combination with ofatumumab in previously-treated CLL (chronic lymphocytic leukemia) patients.

Gilead has 10 cancer therapies in Phase 3, and many more at earlier stages of the pipeline. Collaboration with other companies, notably with AstraZeneca for combinations with checkpoint inhibitors, are also underway.

Numerous other studies are underway or planned; see Gilead pipeline.

Cost of goods sold was $998 million. Research and development expense was $818 million. Selling, general and administrative expense was $812 million. Income from operations was $5.62 billion. Other expense was $105 million. Income tax provision was $1.01 billion. Net loss attributable to noncontrolling interest was $5 million.

R&D expense will continue to ramp in 2015 to drive the pipeline, particularly Phase 3 trials for liver oncology.

A 25 million share reduction will take place by end of Q3

Q&A:

Encouraged that the number of Genotype 1 patents treated for 8 weeks is increasing. These are likely less sick patients, and a better value for payers.

Any thought of biotech mid-cap valuations and any acquisition plans? We have seen some dramatic growth in valuations, but also in innovations. "Gilead is in terrific shape. . . so we could do a wide range of things." We can be selective.

HCV now treated 300,000 patients in U.S., with competitors. Is pool of patients being replenished? Yes, categorically. Doctors say they have many patients in the queue, barred by payer restrictions. We are seeing about 30,000 per month HCV positive patients moving to treated care. There are about 1.6 million people in the U.S. diagnosed, but we are looking to see increased diagnosis rates.

Product sales guidance assumptions, particularly for HCV? We thing less HCV patients will be treated in H2 as in H1 because of the bulge in Q1 waiting for Harvoni. The overall trend is not going down, but we don't expect a repeat of the Q1 spike. Also the VA is depleted of funds right now. In Europe we see spikes country by country when Harvoni is launched.

We believe U.S. HCV therapy sales should stabilize, then begin to grow as payers loosen up restrictions. Studies being published show real world results are as good as or better than the clinical data.

Medicaid patients? About 34 states have signed with us to make Harvoni available. AbbVie has some exclusive states.

Would Merck approval cause another round of payer negotiations? Harvoni has 86% access currently. We believe physicians should choose, not payers. Most payer agreements are multi-year. We believe we can compete on the value of our product.

Blood cancer space? There has been a lot of innovation, and it is now a crowded space. We have broadened our interest. We will be active and open to opportunities, including immuno-oncology. We are pursuing solid tumors with several compounds.

5816 (velpatasvir)? One clear opportunity is to treat genotype 3 patients. But we are looking at other genotypes.

We see 250,000 total (including competitors) HCV patients treated in the U.S. in 2016, depending on payers. The maximum is about 300,000 due to limited capacity of doctors.

Nations in Europe have limited budgets, but they also see the benefit of treating Hep C patients.

Japan HCV market and pricing? It is our first product launch in the Japan, and we hope to launch more products in the future using our entity there. We launched Sovaldi. We are working on a Harvoni pricing agreement. We would not expect any discounts on Harvoni for the first 2 years.

Lower op ex guidance? R&D and SG&A increased y/y largely to accelerate the pipeline. But we had good enrollment, so that lowers cost. The SG&A is mainly about the ongoing commercial investments, but the reduction is mostly due to the reduction of the branded prescription drug fee, which is a one-time event.

OpenIcon Analyst Conference Summaries Main Page

Gilead Investor Relations page

More Gilead analyst conference summaries

Search

More Analyst Conference Pages: